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Identification of Supplier Induced Demand in the Health Care Sector

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  • Richard D. Auster
  • Ronald L. Oaxaca

Abstract

This paper explores the issues and pitfalls encountered when attempting to test empirically the hypothesis that physician, hospital, or any other input supply level induces increasing demand for health services in the strict sense of demand shift and, through that, increased demand for the input in question. Evidence is presented which suggests that an empirical test of the supplier induced demand (SID) hypothesis of the type traditionally performed may not in fact be feasible with cross-sectional aggregate data such as is usually used. Since utilization rates are higher where there are more health-care resources, increases in the supply of hospital beds and number of physicians may lead to increases in the amount of health care sought. Congressional Budget Office [2, p. ii] There was once a cholera epidemic in Russia. The government, in an effort to stem the disease, sent doctors to the worst-affected areas. The peasants in the province of S_discussed the situation and observed a very high correlation between the number of doctors in a given area and the incidence of cholera in that area. Relying on this hard fact, they rose and murdered their doctors. (I am indebted to Evsey D. D_for this tale.) Franklin Fisher [5, pp. 2-3]

Suggested Citation

  • Richard D. Auster & Ronald L. Oaxaca, 1981. "Identification of Supplier Induced Demand in the Health Care Sector," Journal of Human Resources, University of Wisconsin Press, vol. 16(3), pages 327-342.
    • Handle: RePEc:uwp:jhriss:v:16:y:1981:i:3:p:327-342
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    Citations

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    Cited by:

    1. Bailey, James, 2016. "Can Health Spending Be Reined In through Supply Constraints? An Evaluation of Certificate-of-Need Laws," Working Papers 05192, George Mason University, Mercatus Center.
    2. Kevin E. Pflum, 2015. "Physician Incentives and Treatment Choice," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(4), pages 712-751, October.
    3. Eugenia Amporfu, 2011. "Private hospital accreditation and inducement of care under the ghanaian national insurance scheme," Health Economics Review, Springer, vol. 1(1), pages 1-9, December.
    4. Nguyen, Xuan Nguyen, 1996. "Physician volume response to price controls," Health Policy, Elsevier, vol. 35(2), pages 189-204, February.
    5. James Bailey, 2018. "Does “Excess Supply” Drive Excessive Health Spending? The Case of Certificate-of-Need Laws," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 33(Winter 20), pages 91-109.
    6. Christian Schmid, 2015. "Consumer Health Information and the Demand for Physician Visits," Health Economics, John Wiley & Sons, Ltd., vol. 24(12), pages 1619-1631, December.
    7. Marvasti, Akbar, 2014. "An estimation of the demand and supply for physician services using a panel data," Economic Modelling, Elsevier, vol. 43(C), pages 279-286.
    8. Jon Gruber & John Kim & Dina Mayzlin, 1998. "Physician Fees and Procedure Intensity: The Case of Cesarean Delivery," NBER Working Papers 6744, National Bureau of Economic Research, Inc.
    9. Martin Gaynor, 1994. "Issues in the Industrial Organization of the Market for Physician Services," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 211-255, March.
    10. Elaine Kelly & George Stoye, 2015. "New joints: private providers and rising demand in the English National Health Service," IFS Working Papers W15/22, Institute for Fiscal Studies.
    11. Productivity Commission Melbourne Institute of Applied Economic & Social Research, 2002. "Health policy roundtable," HEW 0207002, University Library of Munich, Germany.
    12. Skinner Jonathan & Wennberg John E., 2000. "Regional Inequality in Medicare Spending: The Key to Medicare Reform?," Forum for Health Economics & Policy, De Gruyter, vol. 3(1), pages 1-24, January.
    13. Fredrik Carlsen & Jostein Grytten, 1998. "More physicians: improved availability or induced demand?," Health Economics, John Wiley & Sons, Ltd., vol. 7(6), pages 495-508, September.
    14. Lise Rochaix & Stéphane Jacobzone, 1997. "L'hypothèse de demande induite : un bilan économique," Économie et Prévision, Programme National Persée, vol. 129(3), pages 25-36.
    15. Ya‐Chen Tina Shih & Ming Tai‐Seale, 2012. "Physicians' perception of demand‐induced supply in the information age: a latent class model analysis," Health Economics, John Wiley & Sons, Ltd., vol. 21(3), pages 252-269, March.
    16. Mikkers, Misja, 2016. "The Dutch Healthcare System in International Perspective," Other publications TiSEM 800704a0-24ee-4830-8659-2, Tilburg University, School of Economics and Management.
    17. Atella, Vincenzo, 2000. "Drug cost containment policies in Italy: are they really effective in the long-run?: The case of minimum reference price," Health Policy, Elsevier, vol. 50(3), pages 197-218, January.
    18. Kebin Deng & Zhong Ding & Jieni Li, 2022. "Medical insurance and physician-induced demand in China: the case of hemorrhoid treatments," International Journal of Health Economics and Management, Springer, vol. 22(3), pages 257-294, September.
    19. Grytten, Jostein & Sorensen, Rune, 2007. "Primary physician services--List size and primary physicians' service production," Journal of Health Economics, Elsevier, vol. 26(4), pages 721-741, July.
    20. Merehau Cindy Mervin & Sukhan Jackson, 2009. "How can we improve waiting time for elective surgery in Australian public hospitals?," Discussion Papers Series 387, School of Economics, University of Queensland, Australia.

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